An unnamed “senior American official” told the New York Times that reports the man had confessed to passing hundreds of classified documents to the US over the last two years “threaten to undo all the repair work” that has been attempted with Germany.

The incident, only months after it emerged the NSA monitored Chancellor Angela Merkel's phone calls, is the latest in a series of spying scandals that have strained relations between the two countries, and has been greeted with shock and fury in Germany.

The American official's comments were a marked change in tone from the US, and came after the German foreign ministry summoned the American ambassador away from Independence Day celebrations to demand “help in the swift clarification of the case”.

The US government's only previous response to the arrest was a terse “no comment”.

Mrs Merkel's government has not spoken on the case publicly beyond noting that it is “serious”.

But a spokesman for her CDU party-led group in parliament, Stephane Meyer, said that if the latest spying allegations are true, it is “a huge breach of trust in the transatlantic relationship”.

And the leader of junior coalition partner the SPD's parliamentary group, Thomas Oppermann, called it “an outrageous attack on our parliamentary freedom”.

Opposition parties rounded on Mrs Merkel, accusing her of being too conciliatory in her approach to the US.

“All fingers point to the Chancellor’s Office and its boss,” Bernd Riexinger of the Left Party said, calling on the government to “show its teeth” and “take a stand against this attack on its freedom”.

Katrin Göring-Eckardt of the Green Party said it was a “huge debacle” for the government, and called for all security cooperation with friendly countries to be reviewed.

German MPs are particularly incensed by reports the arrested man had handed the Americans documents linked to an ongoing parlimentary enquiry into the NSA affair.

Little has been officially confirmed about the case. The German authorities have acknowledged only that a 31-year-old man has been arrested on suspicion of spying for a foreign country. Other details that have emerged have come in leaks to the German media.

From those reports it appears that it was the arrested man who first approached the Americans, in an email to the US embassy in which he offered to sell classified documents for cash.

He had access to the documents because of his work for the BND. He travelled to Austria to meet an American contact on at least three occasions, and handed over some 200 to 300 documents by USB stick, in exchange for €25,000 in cash.

In a crucial detail which has served to increase German anger, Bild newspaper reported he got his instructions directly from the US embassy in Berlin.

The order for his arrest was given after a similar email to the Russians offering to sell them classified documents was intercepted.

Investigators who thought they had captured a Russian mole were astonished when he confessed he had been spying for the Americans for two years.